Exxaro to protect empowerment status

Allan Seccombe |
Tue, 22 Aug 2006 17:00

[miningmx.com] -- EXXARO, the company to be formed by a merger of Eyesizwe Coal and the non-iron ore assets of Kumba Resources, wouldn’t grow as quickly as major companies because it wanted to retain its empowerment credentials, says Eyesizwe CEO Sipho Nkosi.

“An empowerment company like Exxaro operates at a slightly different level to the very big mining companies, which you see doing huge deals. We owe our existence to the maintenance of that empowerment component," Nkosi says. Exxaro will be South Africa's largest black-owned company.

Nkosi will take the reins as chief executive once Con Fauconnier steps down as Exxaro CEO after a year at the helm. The Eyesizwe empowerment consortium will own 55% of Exxaro.

"For you to grow through mergers and shares you have to be careful you don’t dilute the empowerment component for a period of time. You have to keep on piling up
cash, more debt and so on. Our growth could be slightly slower than others.”

maintenance of that empowerment component

Exxaro and Kumba will be separately listed in the fourth quarter of this year after a lengthy process entailing detailed paper work and intricate negotiations involving more than 20 companies, including South Africa's largest mining company Anglo American, which will take the majority stake in the Kumba iron ore company.

Exxaro has plans to grow coal output to 60m t/year, making it South Africa’s largest domestic coal producer. These plans will be formulated at a strategy meeting later in the year once both companies have finally been melded.

Kumba produced 20m tonnes of coal in 2005, with about 15m tonnes of that being sold to state power company Eskom. Exxaro will become
South Africa's fourth largest coal producer with 45m tonnes of output a year.

Exxaro could also rapidly double its coal exports through Richards Bay Coal Terminal to 10m t/year. That would depend on arrangements it can make for the off-take of lower quality coal to make the mining of better quality deposits economically viable, Nkosi says. Such offtake would include deals with state power utility Eskom to fire its coal-burning electricity plants.

Eyesizwe has struck the perfect deal in the formation of Exxaro, as it gives it a massive “leg up” reaching the untapped Waterberg coalfields that are seen as South Africa’s next big source of coal once the Mpumalanga province coal fields are exhausted.

Eyesizwe has four mines, two of which are rapidly approaching the end of their lives. However, the other two still have a decade’s worth of expansion material in them, which makes accessing the Waterberg coalfields vital for the empowered company, Nkosi
says.

“For further growth and development we’re spending more money in the Waterberg trying to see possibilities of developing there,” Nkosi says. “It’s one of the reasons we struck a deal with Kumba. It was the realisation that to make headway in the Waterberg we needed someone who understands that area and knows it well, someone who has the infrastructure to do that.”

It’s important for the smaller black-owned coal mining companies in Mpumalanga to be brought in as partners with large companies in the Waterberg to ensure they also have access to exportable coal in the future, he says.

The Waterberg currently has a chronic lack of infrastructure and a power station is needed to ensure the viability of the deposit to cream off the lower quality coal and economically
free the export and metallurgical quality coal. This need for investment in infrastructure poses difficulties for most empowered mining companies.

“It won’t be easy for empowered organisations to be stand-alones if they don’t have the capacity, cash and technical skills to go there and develop on their own. They need the muscle, critical mass and capacity to help them through that process,” Nkosi says.

"We will continue to build the coal business. We will continue strengthening mineral sands. We need to seriously study the zinc business and decide whether we should be there or not, or should we be in the entire base metals business like copper and nickel, he adds. "I can’t put a handle on it without a proper study."